South-Western College Publishing - Economics  
Britain’s Farmers Faring Well Despite Hoof-and-Mouth Disease
Topic Resource Markets
Key Words

Farming, Britain, cattle, hoof-and-mouth disease, prices

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Reference ID: A167393615
News Story

British agriculture went through several scares this summer, including floods and a bout with hoof-and-mouth disease. Despite all of that, farmers expect to do relatively well this year. Why?

First, the disease outbreak was quickly contained, with the government being able to isolate the source of the disease. However, damage was done. Meat sellers had no business, and trade shows were non-existent. The ban on meat will not be lifted until 3 months after the last case of the disease is diagnosed. This ban is costing the industry approximately 10 million British pounds a week. So why are farmers expected to do well?

First, there is a drought in Australia, and there is huge enthusiasm in the US for bio-fuels. The first constricts the supply of agriculture globally, and the second increases demand for global agriculture, as much of the agriculture in the US turns toward fuel production instead of food production. And income levels in developing nations are rising: as they get richer, they get hungrier for higher-protein diets.

All of this points to the high probability that British farmers will see their incomes continue to increase this year (not counting the government subsidies they are receiving during the ban on meat). A tight global agricultural market means higher prices for consumers, and higher profits for farmers around the world. Since 2000, farm incomes are up 50%, and are expected to be up 7% for this year.

Farmers follow a boom-and-bust cycle. In boom periods, incomes tend to lag behind, because the high supply keeps prices down. In bust cycles, incomes (for those who don’t go bankrupt) rise, as the limited supply raises prices for consumers. It appears that we may be in the bust-section of the cycle, as farmers are doing well, and consumers are paying more for their goods.

Questions
Discussion Questions:
1.

What is the impact on the global agricultural market of the US increase in demand for bio-fuels?

2. Why is it that for a farmer to have a good year, it may be necessary for other farmers to have a bad year?
3. The ban on meat produced in Britain could have what impact on meat prices in the US?
Multiple Choice/True False Questions:
1. Farmers in Britain are seeing a huge increase in demand for their cattle.
  1. True
  2. False
2. Agricultural prices are rising for consumers because
  1. Supply increases are not keeping pace with demand increases.
  2. Supply increases are more than keeping pace with demand increases.
  3. Supply decreases are larger than demand decreases.
  4. Supply decreases are smaller than demand decreases.
3. We have typically referred to agricultural markets as perfectly competitive because sellers are typically too small to have any impact on the price of their product, which is typically the same as that of other producers.
  1. True
  2. False
Source “Life on the Land,” The Economist, August 9, 2007.
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